November 30, 2011

When someone owns real estate with another person, or many individuals own it together, they often disagree about how it should be sold, at what price, or whether one person should buy out the others. This often occurs when someone dies, leaving the real estate to multiple owners.

In such a situation, there is a proceeding called a Petition to Partition. This allows at least one of the individual owners to petition the court to divide the property and force a sale. When this process is initiated, a notice is issued by the court and served upon all owners of the property, as well as anyone who may have an interest in it, such as a lien holder or the holder of a mortgage.

In most cases, a probate court judge will then appoint an attorney to serve as the commissioner. This commissioner’s duties and responsibilities are to market the property, locate a buyer, usually with the help of a realtor, and sell it. Distribution of the net proceeds is then made to the individuals in the shares to which they own the property.

This process is somewhat time consuming and expensive, as most of the owners usually engage their own lawyer. Naturally, anybody who doesn't want this matter to proceed may file an objection with the probate court, but normally, their objection will be overturned, as the other owners have a right to force the sale of the property.

These situations often occur when a family can’t agree on the terms of the sale itself. In many cases, however, a family is unable to agree or communicate in any fashion that would allow the matter to proceed uncontested, and therefore, the partition proceeding is necessary in order to force the sale on behalf of the uncooperative or disagreeable heirs.

The Petition to Partition proceeding should be viewed as a last resort when there is basically no cooperation among family members. All parties must understand that there will be significantly more expense and time delay, and their property may in fact be sold to an unwanted buyer at a lower than anticipated price. However, whenever there is a forced sale of property, there is usually a line of buyers available who know that the property must be sold due to lack of sufficient funds to pay the taxes, insurance, utilities, etc.

Another, less costly option would be to hire a mediator to work out a family disputes rather than pursuing litigation in such a situation.

November 23, 2011

Often a person who wants to leave funds to his or her disabled child is advised to not leave the funds outright, as they may push the recipient over the threshold for assets and income and disqualify the child from receipt of governmental benefits. A better option is to have the funds left to a Special Needs Trust, where they are distributed at the sole discretion of a trustee, therefore, providing for continuation of governmental benefits without disqualification.

However there are complications to having a trust receive funds outright, such as tax implications, since in most cases, none of the funds have been taxed. Of course, this is not true for assets such as Roth IRAs and non-retirement benefits.

It is important for a parent or grandparent to consider having funds distributed to a Special Needs Trust because, when a trust receives funds, a substantial portion of the money received may be in the highest income tax bracket, (35%,) since trusts and estates have significantly higher income tax brackets and lower thresholds of exemptions than individuals. It may also be preferable to have the funds distributed over a period of time, such as a stretch IRA, or using a conduit trust in order to allow the funds to be available for the beneficiary, but not have the funds taxed at the higher bracket.

It is important to note that a Special Needs Trust must be properly drafted to qualify as a designated beneficiary under the current IRS rules and regulations. In many cases, the beneficiary must be an individual, the ultimate beneficiaries must be clearly enumerated and designated, and a Special Needs Trust may not include a charity as a potential beneficiary. Certain beneficiaries must be also named with life expectancies.

In some cases, it may be advisable to merely allow the trust to pay the tax and invest the net proceeds, but this decision must be identified and discussed prior to the naming of the trust as the beneficiary of this qualified plan.

November 02, 2011

If something happened to you, how would your family would feel about the way you left your affairs? Are your financial assets and legal affairs in order or are they a mess. Have you carefully considered who you have appointed to be in charge of your estate, or is it possible that you don’t even have a will yet?

While it is very vital to have your affairs in order in the event that you are incapacitated, it is equally as important to be sure that you’ve arranged to have your assets distributed as desired in the unfortunate event of your death. We all know someone who passed away unexpectedly, and we all say “That won’t happen to me.” Unfortunately, it does happen.

It is likely that you need a will to leave your assets outright to your spouse or other family members or charities immediately upon your death. You may have minor children and need to establish a trust to have the funds they inherit remain in an account with a Trustee to invest them, manage them, and distribute them as needed until your kids are of a certain age and mature enough to receive their assets in a lump sum, or in specific increments.

One of the most important decisions is the appointment of an executor or personal representative. This person or people, whether family members, friends, professional advisors, or perhaps a bank, will be in charge of settling your estate. It is their job to gather all assets, determine which debts and liabilities should be paid and which should not, attend to the filing of all income and estate tax returns, and then make distribution as set forth in your will and trust. It is important to be sure that the person you have named is appropriate.

Also, if your will old, you may wish to revisit it to determine whether the named executor is still the right one at the current time. You may question whether the person you have appointed has a good relationship with family, is competent to serve, or knows that they may need to contact attorneys, accountants, and investment individuals in settling the estate, as opposed to having them do it on their own.

You should have a complete listing of your assets and liabilities, along with account numbers, that you keep in a safe and secure place, so that if something does happen to you, your executor will have immediate access to all of your information. This could be kept on a disc or on a program within your computer, but then it is important to be sure that someone knows how to access that information with passwords, login information, etc.

It is estimated that approximately 50% of the public dies without a will, leaving a mess of issues such as who will be in charge, who will pay taxes on assets, should assets be sold or maintained, should the real estate be kept, rented, or sold, and who should receive all of the tangible personal property? Now consider the 50% of the population that create an appropriate plan and keep it up to date. Which 50% would you rather put your family into?